20120824 0954 Global Markets Related News.

Asia FX By Cornelius Luca - Thu 23 Aug 2012 17:11:11 CT (Source:CME/www.lucafxta.com)
The appetite for risk diminished considerably on Thursday after St. Louis Fed President James Bullard tamed expectations for further Fed easing, saying current economic conditions are not weak enough. The markets were buoyant on hopes for Fed easing and miracle work from the ECB. But in reality Spain is rumored to discuss terms of vital support from the ECB and Greece remains an expensive weight on the Eurozone. The risk remains on the downside and the US stock indexes peaked on Tuesday. The European currencies remained firm overall, but the commodity currencies tumbled on piling evidence that the Chinese economy is slowing down. The US stock markets fell, while the gold/oil ratio rose. The short-term outlook for most foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is long across the board.  Good luck!

Overnight
US: The initial jobless claims edged up to 372,000 from the previous week's revised figure of 368,000 (from the 366,000 originally reported).
US: New single-family home sales rose 3.6% to a seasonally adjusted annual rate of 372,000 in July from the upwardly revised rate of 359,000 in June from the 350,000 initially reported.
US: The Markit manufacturing PMI advanced to 51.9 in August from 51.4 in July.

Today's economic calendar
Japan:  Corporate service price for July
Australia: Leading index for June

Asian stocks fell from the highest level since May amid concern that European leaders aren’t making progress in solving the region’s debt crisis, damping the earnings outlook for exporters across the region. (Source: Bloomberg)
Makita Corp. (6586), a maker of power tools that gets more than 40 percent of its sales in the debt stricken region, slid 1.4 percent. BHP Billiton Ltd. (BHP), the world’s largest mining company, declined 1.6 percent as metals prices dropped. Woolworths Ltd. retreated 1.5 percent as Australia’s biggest retailer posted full-year earnings that missed estimates. The MSCI Asia Pacific (MXAP) Index slid 0.9 percent to 120.74 as of 9:42 a.m. in Tokyo, erasing this week’s advance, before the open of markets in China and Hong Kong. The gauge yesterday closed at the highest level since May 4. “We remain quite cautious,” said Daphne Roth, Singapore- based head of Asia equity research at ABN Amro Private Banking, where she helps oversee about $207 billion. “In Europe, while they are moving in the right direction, the pace is slower than the market expects.”
Asia’s equity benchmark climbed 12 percent from a June low through yesterday on bets monetary authorities in the U.S., Europe and China would take action to boost slowing economic growth. Stocks on the index were valued at 12.6 times estimated earnings on average, compared with 13.7 for the Standard & Poor’s 500 Index and 11.6 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Japanese Stocks Decline Amid Euro Debt-Crisis Concern (Source: Bloomberg)
Japanese stocks declined, with the Nikkei 225 Stock Average falling the most in a month, amid concern European leaders aren’t making progress in solving the region’s debt crisis, curbing the earnings outlook for exporters. Ricoh Co., an office-equipment maker that gets more than 20 percent of its revenue in Europe, sank 2.7 percent. Japan Tobacco Inc. (2914), Asia’s largest listed cigarette maker by market value, lost 2 percent after BNP Paribas SA advised selling the stock. Steelmakers led declines among the Topix Index’s 33 group after the sector was downgraded by Dahlman Rose & Co., saying prices may be at a peak. Osaka Securities Exchange Co. plunged 8.3 percent after Tokyo Stock Exchange Group Inc.’s tender offer for the rival bourse succeeded. The Nikkei 225 fell 1.4 percent to 9,052.74 as of 9:19 a.m. in Tokyo, heading for a weekly drop of 1.2 percent. Volume on the gauge was more than 10 percent below the 30-day average.
The broader Topix Index lost 1.2 percent to 755.43, with almost six times as many  shares declining as advancing. “Most of the risk still comes from Europe,” said Stan Shamu, a market strategist at IG Markets Ltd. in Melbourne, a provider of trading services for stocks, bonds, currencies and commodities. “There’s still skepticism that European leaders can come up with a solution.”

S&P 500 Falls Most in One Month Amid Concern Over Europe (Source: Bloomberg)
U.S. stocks fell, as the Standard & Poor’s 500 Index posted its biggest decline in a month, amid investor concern that European leaders aren’t making progress in solving the region’s debt crisis. Hewlett-Packard Co. (HPQ) dropped 8.2 percent after forecasting full-year earnings that missed analysts’ estimates as demand slumped. Big Lots Inc. (BIG) tumbled 21 percent after lowering its annual earnings projection. Boeing Co. retreated 3.4 percent after losing 35 orders for 787-9 planes, the biggest Dreamliner cancellation. Alcoa Inc. (AA) erased 2.7 percent, pacing declines among raw-material stocks. The S&P 500 (SPX) slumped 0.8 percent to 1,402.08 at 4 p.m. in New York. The benchmark index for American equities is heading for its first weekly decline in almost two months, with a four- day drop of 1.1 percent. The Dow Jones Industrial Average lost 115.3 points, or 0.9 percent, to 13,057.46 today. Volume for exchange-listed stocks in the U.S. was 5.3 billion shares, 16 percent below the three-month average.
“We’re tipping over into a corrective phase in stocks,” Barry James, who helps oversee $3.3 billion as president of James Investment Research in Xenia, Ohio, said in a telephone interview. “Europe is the key driver in the world right now. European leaders aren’t really addressing the root problems.” German Chancellor Angela Merkel said Europe is in one of its deepest crises, and while the path to a solution is “arduous,” the euro region will emerge stronger. She hosted French President Francois Hollande today as the leaders of Europe’s two biggest economies seek common ground on Greece and the wider debt crisis. Greece’s prime minister, Antonis Samaras, will follow Hollande to Berlin tomorrow and travel on to Paris on Aug. 25.

U.K. Stocks Little Changed as Investors Weigh Stimulus (Source: Bloomberg)
U.K. stocks were little changed as speculation that central banks will ease monetary policy offset a report showing the number of Americans filing applications for unemployment benefits climbed last week to a one-month high. Randgold Resources Ltd. (RRS) and Fresnillo Plc (FRES) each advanced more than 3.5 percent. Anglo American Plc (AAL) climbed 1.7 percent as the mining company reached an agreement to end a 10-month dispute over a copper mine in Chile. Petropavlovsk Plc (POG) plunged 16 percent, its biggest slump in more than 3 1/2 years.
The benchmark FTSE 100 Index (UKX) gained 2.4 points, or less than 0.1 percent, to 5,776.6 at the close in London, after earlier rising as much as 0.6 percent. Stocks retreated the most in a month yesterday, led by a selloff in mining companies, as BHP Billiton Ltd. put $68 billion of projects on hold and Japan reported a wider-than-estimated trade deficit. The broader FTSE All-Share Index also rose less than 0.1 percent today, while Ireland’s ISEQ Index declined 0.3 percent. “I’ve always taken the view that there is a very high probability of QE3,” said Robert Parker, a senior adviser at Credit Suisse Asset Management in London, in a Bloomberg TV interview, referring to a third round of quantitative easing. “Politically, I think that has to be in September.” Minutes from the Federal Open Market Committee’s July 31- Aug. 1 meeting showed that many members decided that they would soon need to opt for further stimulus.
“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the gathering.

European Stocks Fall on Schaeuble Comments (Source: Bloomberg)
European stocks dropped for a second day as German Finance Minister Wolfgang Schaeuble damped optimism that Greece will get more time to cut its debt and as bond yields climbed in Spain. Banco Bilbao Vizcaya Argentaria SA (BBVA) slid 1.8 percent as lenders retreated across Europe. Royal Ahold NV lost 3.6 percent after the retailer reported earnings that missed some analysts’ estimates. Petropavlovsk Plc (POG) tumbled 16 percent after the miner of gold in Russia reported a slump in profit. The Stoxx Europe 600 Index (SXXP) retreated 0.6 percent to 267.69 at the close. The gauge earlier advanced as much as 0.6 percent on speculation central banks from the U.S. to China will further ease monetary policy to support growth. The equity benchmark has still rallied 14 percent from this year’s low on June 4.
“There are many negative factors weighing on the market, notably the uncertainty associated with the sovereign-debt crisis and a weak outlook for earnings,” Nathalie Benatia and Christopher Jeffery, strategists at BNP Paribas, wrote in a report to clients. “However, these are currently being offset by market anticipation of further policy assistance. We expect this anticipation to build over the coming weeks.” Stocks fell as Germany’s Schaeuble said that allowing Greece more time to meet its debt obligations would not solve the country’s problems and would increase costs for creditors. He spoke on SWR2 radio.

Emerging-market stocks rose as investors speculated Chinese and U.S. policy makers will take steps to boost growth in the world’s largest economies as applications for U.S. unemployment benefits climbed. (Source: Bloomberg)
The MSCI Emerging Markets Index (VXEEM) climbed 0.5 percent to 974.09. Russia’s Micex Index added 0.5 percent with United Co. Rusal, the world’s biggest aluminum producer, leading the gains. Chinese shares posted the biggest advance in almost three weeks. Brazil’s Bovespa stock index slid with Vale SA, the world’s largest iron-producer, among the decliners. Chinese data signaled the nation’s manufacturing may contract at a faster pace this month, fueling speculation the People’s Bank of China will ease monetary policy a day after Governor Zhou Xiaochuan said adjustments to borrowing costs can’t be ruled out. Federal Reserve Bank of Chicago President Charles Evans, speaking to reporters in Beijing, urged looser monetary policy around the world. Jobless claims in the U.S. climbed to a one-month high last week.
“The optimism in the market carries from expectation that central banks are moving toward a position of policy easing and stimulus support,” Aryam Vazquez, an economist for global emerging markets at Wells Fargo & Co., said by phone from Miami. “The job number today was far from great, and that plays into the very dovish tone from the Fed.”

Recap Stock Index Market Report (Source:CME)
The September S&P 500 registered an outside day reversal to the downside on the session. The market traded higher during the early morning hours, fueled by ideas that more central bank support could be on its way. However, a round of disappointing earnings, weak Chinese and European manufacturing data and comments from a Fed official tamping down hopes for more QE turned markets lower. Shares of Hewlett-Packard were down more than 8.0% during the session after reporting their largest quarterly loss in history and lowering their full year guidance. There was more disappointment in the retail sector, with weaker than expected results from Big Lots and Guess. Talk that the US Fed might not pursue more quantitative easing at the September meeting seemed to turn sentiment in the market negative and inspire a round of profit-taking.

Treasuries Gaining Most on Week in Almost 3 Months (Source: Bloomberg)
Treasuries headed for their biggest weekly gain in almost three months on speculation the Federal Reserve will increase its efforts to cap borrowing costs as soon as its Sept. 12-13 meeting to support the economy. Bonds rose yesterday as a jump in initial claims for jobless benefits boosted speculation the central bank will act. Fed Bank of Chicago President Charles Evans said today there are reasons for the Fed to “do more,” in an interview on CNBC. Fed Bank of St. Louis President James Bullard told CNBC yesterday signs of improvement in the economy would prompt him to oppose any Fed program to buy bonds to lower borrowing costs. “Treasury yields will decline,” said Hiromasa Nakamura, who invests in U.S. debt from Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $41.9 billion and is part of Japan’s third-biggest bank. “The employment situation is not so good. The Fed may take action fairly soon.”
Benchmark 10-year yields were little changed at 1.69 percent as of 9:42 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The price of the 1.625 percent security due in August 2022 was 99 14/32. The rate has risen from the record low of 1.38 percent set July 25. It compares with the average of 3.73 percent for the past decade. The yield fell 12 basis points, or 0.12 percentage point, this week, the largest drop since the period ended June 1. Many Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their July 31-Aug. 1 meeting released Aug. 22.

FOREX-Euro hits 7-week high vs dollar after Fed, PMIs
LONDON, Aug 23 (Reuters) - The euro rose to a seven-week high against the dollar, after business activity surveys in France and Germany were not as bad as feared, lifting some of the pessimism surrounding the region's economy.
"The French PMIs were a bit better while the German one was at best mixed," said George Saravelos, currency strategist at Deutsche Bank. "Still, at the margins they are supportive and we expect the euro has a bit more to go towards $1.27. Markets are also starting to put a bit more risk premium on the Fed."

Korean Won Falls, Bonds Gain as Fed Stimulus Bets Weaken (Source: Bloomberg)
South Korea’s won dropped from a one-week high and bonds advanced as expectations for further monetary stimulus by the U.S. faded after a policy maker said he would resist more Federal Reserve action. Federal Reserve Bank of St.Louis President James Bullard said yesterday that recent signs of improvement in the economy would prompt him to oppose any new Fed program to buy bonds, known as quantitive easing. The central bank said in minutes released this week that many participants at the latest meeting favored more stimulus measures. The Kospi Index (KOSPI) of shares dropped as overseas investors sold more of the nation’s equities than they bought for the first time since Aug. 3. “There are increased doubts whether the Fed will actually perform a third round of quantitative easing or not,” said Cho Young Bok, a Seoul-based currency dealer for Daegu Bank. “Still, we may see South Korean exporters selling the dollar as the won weakens, which will limit won’s losses.”
The won weakened 0.3 percent to 1,134.10 per dollar as of 9:44 a.m. in Seoul, data compiled by Bloomberg show. It touched 1,129.35 yesterday, the strongest level since Aug. 14, and was little changed for the week. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, fell 20 basis points, or 0.20 percentage point, to 7.15 percent. The yield on the government’s 3.25 percent bonds due June 2015 slid two basis points to 2.86 percent, the lowest since Aug. 13, Korea Exchange Inc. prices show. The rate dropped seven basis points this week. Three-year debt futures rose 0.08 to 105.98 and the one-year interest-rate swap fell two basis points to 2.91 percent.

Euro Set for Weekly Advance as Europe Leaders Meet (Source: Bloomberg)
The euro was set for its biggest weekly advance in six months on speculation European leaders meeting this week are making progress in containing fiscal turmoil in the region, boosting demand for the currency. The 17-nation euro strengthened versus all but one of its 16 major counterparts in the past five days after German Chancellor Angela Merkel said she and French President Francois Hollande will coordinate on their approach to Greece. Merkel is set to meet Greek Prime Minister Antonis Samaras today. The dollar headed for its biggest five-day slide in 12 weeks against the yen as an increase in jobless claims spurred speculation the Federal Reserve will add to stimulus measures. “The general risk from Europe has definitely been reduced,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “I think we’ve got further to run in the phase of unwinding bets for a euro collapse.”
The euro was at $1.2555 at 9:48 a.m. in Tokyo from $1.2564 yesterday in New York, when it touched $1.2590, the highest since July 4. Europe’s shared currency bought 98.63 yen from 98.62. The dollar traded at 78.56 yen from 78.49 yesterday. The euro has risen 1.8 percent since Aug. 17, the best weekly performance since the period ended Feb. 24. The dollar has weakened 1.3 percent versus its Japanese counterpart, set for the biggest five-day drop since June 1.

HSBC in Settlement Talks With U.S. Over Money Laundering (Source: Bloomberg)
HSBC Holdings Plc (HSBA), which is under investigation by U.S. regulators for laundering funds of sanctioned nations including Iran and Sudan, is in talks to settle the matter, two people with knowledge of the case said. The bank, Europe’s largest by market value, made a $700 million provision in July for any U.S. fines after a Senate Committee found it had given terrorists and drug cartels access to the U.S. financial system. That sum might increase, Chief Executive Officer Stuart Gulliver has said. An HSBC settlement regulators and the Manhattan District Attorney were aiming to conclude as early as September may have been slowed when New York’s banking superintendent accused Standard Chartered of laundering $250 billion for Iran. Regulators had been talking with both banks about universal accords when Benjamin Lawsky on Aug. 6 threatened to revoke Standard Chartered’s license.
Deals with the London-based banks next month are still possible, said the people, who asked not to be identified because the investigations are confidential. “This is an epidemic of banks willfully, consistently violating economic sanctions,” Jimmy Gurule, a former undersecretary for enforcement at the U.S. Treasury, said of sanctioned-nation money laundering. “It calls for more serious sanctions than a monetary fine for an individual bank that does nothing more than harm shareholders.”

Fed looks set to ease fairly soon barring swift rebound (Reuters)
The Federal Reserve is likely to deliver another round of monetary stimulus "fairly soon" unless the economy improves considerably, minutes from the U.S. central bank's latest meeting suggested.

Jobless Claims in U.S. Climb for Second Week to One-Month (Source: Bloomberg)
Applications for U.S. unemployment benefits climbed last week to a one-month high, showing scant progress in the labor market that’s left Americans more pessimistic about the economy. Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed today in Washington. Consumer confidence dropped last week to the lowest level since January, according to the Bloomberg Consumer Comfort Index. Companies are keeping payrolls lean as a weaker global economy and lack of clarity on U.S. tax policy next year cloud the demand outlook, one reason the Federal Reserve may be closer to further monetary stimulus. Residential real estate is a source of strength for the expansion, according to a report that showed new-home sales matched a two-year high in July.
“The economy is growing, but it’s still moderate growth, and the labor market is still weak,” said Scott Anderson, chief economist at Bank of the West in San Francisco. “We’re also getting better numbers in terms of building activity. That’s certainly adding to growth and offsetting some of the weakness we’re seeing from the consumer.”

U.S. Incomes Fell More in Recovery, Sentier Says (Source: Bloomberg)
American incomes declined more in the three-year expansion that started in June 2009 than during the longest recession since the Great Depression, according an analysis of U.S. Census Bureau data by Sentier Research LLC. Median household income fell 4.8 percent on an inflation- adjusted basis since the recession ended in June 2009, more than the 2.6 percent drop during the 18-month contraction, the research firm’s Gordon Green and John Coder wrote in a report today. Household income is 7.2 percent below the December 2007 level, the former Census Bureau economic statisticians wrote. “Almost every group is worse off than it was three years ago, and some groups had very large declines in income,” Green, who previously directed work on the Census Bureau’s income and poverty statistics program, said in a phone interview today. “We’re in an unprecedented period of economic stagnation.”
While gains in hourly earnings and average hours worked per week may have had “a minor mitigating effect” on income declines, they couldn’t offset a jobless rate that hasn’t fallen below 8 percent since February 2009 and a record duration of unemployment, according to the Annapolis, Maryland-based firm. The average duration of unemployment increased to a record 41 weeks in November and remains at 39 weeks, Labor Department data show. Almost 5.2 million Americans have been out of work for at least six months.

Sales of New U.S. Homes Increase to Match Two-Year High (Source: Bloomberg)
Purchases of new U.S. homes rose more than projected in July to match a two-year high, a sign the industry that helped trigger the recession is recovering. Sales climbed 3.6 percent to a 372,000 annual pace, following a 359,000 rate in June that was higher than previously estimated, figures from the Commerce Department showed today in Washington. Last month’s rate was the same as in May, which was the strongest since April 2010. The median forecast of 72 economists surveyed by Bloomberg called for a rise to 365,000. Buyers are returning to the market to take advantage of cheaper properties and record-low mortgage rates, helping to boost orders at builders like Toll Brothers Inc. (TOL) Competition from foreclosures, unemployment exceeding 8 percent and limited credit pose hurdles to a more pronounced rebound, one reason Federal Reserve policy makers are monitoring housing data.
“The new-home market is clearly signaling a steady and fairly strong recovery,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. “Demand should continue to climb right on into 2013.” Stocks held earlier losses after the report. The Standard & Poor’s 500 Index fell 0.6 percent to 1,404.73 at 10:17 a.m. in New York. Estimates of economists surveyed ranged from 340,000 to 400,000. June’s reading was previously reported as 350,000.

Consumer Comfort in U.S. Slumps to Lowest Level Since January (Source: Bloomberg)
Consumer confidence in the U.S. fell last week to the lowest level since January as Americans’ held more pessimistic views on their finances. The Bloomberg Consumer Comfort Index decreased to minus 47.4 in the period ended Aug. 19, the sixth consecutive drop, from a minus 44.4 the prior period. The series of declines is the longest since 2008, when the U.S. was in recession. Higher gasoline prices are taking a bigger chunk out of Americans’ paychecks, and an increase in food prices caused by a drought in parts of the country may further hurt finances. In addition, job growth hasn’t proceeded fast enough to bring the unemployment rate below 8 percent, indicating incomes may fail to keep pace with escalating expenses.
“Rising food and gas prices have stoked a bout of discomfort among a broad section of the American public,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The pain has been especially evident down the income ladder in households that will bear the disproportionate burden of adjustment to higher prices. The result will likely be a net slowing in discretionary spending.” Readings below minus 40 put the comfort gauge “in the zone associated with deep economic discontent,” according to Gary Langer, president of New York-based Langer Research Associates, which compiles the index for Bloomberg. The index has lost 16 points since peaking this year in April.

Fed’s Bullard Says FOMC Minutes ‘Stale,’ Economy Stronger (Source: Bloomberg)
Federal Reserve Bank of St. Louis President James Bullard said the Federal Open Market Committee minutes released yesterday are no longer as relevant because the U.S. economy has picked up in the past month. “The minutes are a bit stale,” Bullard said in a CNBC interview. “We have some data since then that is stronger.” Bullard said he opposes a new asset-purchase program right now. In contrast, many Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting released yesterday. Fed Chairman Ben S. Bernanke, who last month said a third round of bond buying was an option, will update his policy outlook on Aug. 31 with a speech to the Kansas City Fed’s annual symposium at Jackson Hole, Wyoming. “It would be unusual for the Fed to take action based on this data constellation,” Bullard said. U.S. equity markets are “looking at all-time highs.”
Bullard, who doesn’t vote on monetary policy this year, was the first Fed official in 2010 to call for a second round of asset purchases. In speeches this year, he has said he sees no need for additional easing and urged the FOMC to “pause” to assess developments. The St. Louis Fed official said the he and other Fed policy makers were disappointed in growth of about 1.5 percent in the first half of the year. A resumption of 2 percent or greater growth seems likely in the second half, he said.

Bullard Opposes Fed Bond Buying as U.S. Economy Improves (Source: Bloomberg)
Federal Reserve Bank of St. Louis President James Bullard said recent signs of improvement in the economy would prompt him to oppose any new program by the Fed to buy bonds to reduce borrowing costs. “I wouldn’t do it right now,” Bullard said today in a CNBC interview. “If it was just me and we just have the data up until today I wouldn’t take a decision right now.” Many Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their July 31-Aug. 1 meeting released yesterday. Bullard said “the minutes are a bit stale” because “we have some data since then that is stronger.” Retail sales increased 0.8 percent in July, more than forecast by economists, and companies hired 163,000 workers, the most in five months. “It would be unusual for the Fed to take action based on this data constellation,” said Bullard, 51, who doesn’t vote on policy this year.
A report today showing the number of Americans filing applications for unemployment benefits rose to a one-month high last week is “consistent with moderate payroll growth” and doesn’t indicate a deterioration, Bullard said. U.S. and European stocks fell as investors weighed whether central banks will ease monetary policy further amid concern over the euro-area crisis. The Standard & Poor’s 500 Index fell 0.5 percent at 10:07 a.m. New York time.

Fed Signals Readiness to Ease Without U.S. Growth Pickup (Source: Bloomberg)
Federal Reserve policy makers signaled readiness to boost record stimulus unless they are convinced the economy is poised to rebound. Recent signs of strength may not be enough to satisfy them. Many members of the policy-setting Federal Open Market Committee said further action would probably be needed “fairly soon” without evidence of “substantial and sustainable” improvement in the recovery, according to minutes of the July 31-Aug. 1 meeting released yesterday in Washington. “The burden of proof is to see a sustained pickup in growth and I don’t think we’re going to get that,” said Eric Green, a former economist at the Federal Reserve Bank of New York who is now global head of rates and foreign exchange research at TD Securities Inc. in New York.
U.S. stocks reversed losses yesterday and gold rose to a 16-week high on expectations of further easing by the central bank. Attention now turns to Fed Chairman Ben S. Bernanke’s Aug. 31 speech in Jackson Hole, Wyoming, where he may clarify his thinking on the need for stimulus in view of recent reports showing gains in retail sales and housing. Many participants at the Fed’s meeting said a new large- scale asset-purchase program “could provide additional support for the economic recovery,” according to the minutes. Policy makers said in a statement after the meeting that they will step up record stimulus if needed to spur growth and cut a jobless rate stuck above 8 percent since February 2009.

Money Funds Test Geithner, Bernanke Resolve as Schapiro Defeated (Source: Bloomberg)
Money-market mutual funds, an alternative to bank accounts for individuals and companies, will test the resolve of the U.S. Federal Reserve and Treasury Department to prevent another financial crisis after the $2.6 trillion industry successfully lobbied against more regulation by the Securities and Exchange Commission. Fed Governor Daniel Tarullo has said the central bank could tighten rules on banks’ borrowing from money-market funds, and Boston Fed President Eric Rosengren has said officials have the option to force banks to back their money funds with capital. The Fed and the Treasury could also work through the Financial Stability Oversight Council, a new regulatory panel formed under the Dodd-Frank Act, to seize oversight of money funds from the SEC and grant that power to the Fed. “There’s real unanimity in the bank regulatory arena about the need to do something about money-market funds,” Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics Inc., said in an interview.
“What the Fed can do, and I think will try to, is put the funds back in a much more limited corner, by isolating them from integration with the banking sector.” SEC Chairman Mary Schapiro this week abandoned a four-year effort to adopt tougher rules for money funds as three fellow commissioners said they wouldn’t support her proposal. The announcement marks a victory for the fund industry, which had lobbied against the plan.

POLL-Euro zone flash PMIs signal recession (Reuters)
The euro zone looks destined for its second recession in three years, according to business surveys that showed the economic rot is even spreading through Germany, the region's largest and strongest economy.

Merkel Seeks to Keep Greece on Reform Path in Hollande Talks (Source: Bloomberg)
German Chancellor Angela Merkel said she and French President Francois Hollande will coordinate on their approach to Greece to keep pressure on the country at the heart of Europe’s debt crisis to overhaul its economy. Merkel, speaking to reporters in Berlin before hosting a working dinner with the French president, said they will discuss “how to receive our colleague,” Greek Prime Minister Antonis Samaras, who visits the German capital today and Paris tomorrow. “It’s important to me that we all stand by our obligations and wait for the troika report and see what the result is,” Merkel said in a prepared statement late yesterday, referring to a report due next month on Greece’s progress in meeting its bailout terms. “We, and I, will encourage Greece to pursue the path of reform that demands a lot from the people.”
Samaras has used interviews this week with German and French newspapers to call for more time to meet program targets as European officials look for ways to stave off an immediate crisis after the country’s international creditors report on the health of its finances. Greece is dependent upon receiving outside funds to remain in the 17-nation euro. “We want, I want, Greece to be in the euro zone,” Hollande said. “It’s up to the Greeks to make responsible efforts to achieve this objective.” Merkel and Hollande both said there was a need to implement the agreements made at a June summit of European Union leaders, including plans for closer cooperation between banking authorities.